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Stonybrook automates ILW price sheets with service


Stonybrook Capital, a specialist strategic advisory and investment banking firm focused exclusively on the insurance and reinsurance industry, has developed a service to make pricing of industry loss warranty (ILW) contracts more readily available and transparent.

light-ideaWe’ve highlighted issues surrounding the pricing of industry-loss warranties (ILW’s) and broker’s pricing sheets before, in a number of articles focusing on the lack of updates and transparency in this area of the reinsurance and insurance-linked securities (ILS) market.

The issue is that ILW prices advertised on some pricing sheets are often so far from reality that there is no way any market participant would be able to get a trade done at the prices listed.

Stonybrook Capital sought to address this, with Vice President Dan Butzbaugh, who specialises in the structuring and broking of industry loss warranty and parametric risk transfer, taking the lead.

Butzbaugh explained the issue he has been trying to address.

“The genesis of the idea was the article last May on which highlighted that ILW price sheets were inconsistent with traditional and alternative reinsurance capacity.

“We believe that the ILW market and the traditional/alternative markets’ risk pricing are more closely coupled than the article suggested; instead, we believe the problem you were noticing stemmed from the fact that ILW “broker sheets” are not effective nor even desirable forms for communicating prices.”

Butzbaugh has put technology to work to deliver a more streamlined approach to increasing pricing transparency in the industry loss warranty (ILW) marketplace.

“In collaboration with an InsurTech company, which is an affiliate of (founded by serial innovator Stuart Mercer), we developed a simple email bot technology that allows any market participant to simply email an email address and within seconds get back a listing of current prices.  We at Stonybrook have an active ILW broker Desk and we keep the prices active on a daily basis,” Butzbaugh said.

You can try out this ILW pricing service at any time, receiving a price sheet of fresh ILW pricing simply by sending a blank email to [email protected].

The service will automatically reply within minutes with an attached sheet showing up to date ILW pricing that is actually achievable in the marketplace, providing a much better starting point for negotiation than the often stale ILW sheets market participants are more used to seeing.

The reason this approach is preferable is that prices can be kept more up to date, so providing a more realistic view of the cost of reinsurance capacity in the ILW market at any one point in time.

Elaborating on some of the issues in the ILW market’s approach to pricing, Butzbaugh said, “One global reinsurer mentioned that some brokers provide a different sheet for buyers than the one they provide for sellers, and have never seen a sheet like the one Stonybrook provides where both bids and offers are listed on the same sheet.

“Furthermore, our closed deals are inside those prices, we don’t lure the market with unattainable prices to ultimately close them outside our prices.”

But there’s a lot more work that could be done in this area, to simplify access to pricing and make price marks more real-time in nature.

“While we are still a long way from having an open exchange for trading and price discovery, we believe there are improvements that can be made that make it much easier for participants to get prices in a much easier form than having to call a broker for pricing and then engage in a back-and-forth series of dialogues,” Butzbaugh continued.

Stonybrook is having some success with this approach as well, with a number of ILW’s brokered in recent weeks.

“We at Stonybrook have an active ILW broker Desk and we keep the prices active on a daily basis.  The market has been extremely supportive of this effort and in fact is more than willing to provide prices to support us.  You can see now that we are listing about 45 contracts.  In just the last week of the year we closed 3 ILW transactions,” Butzbaugh explained.

“We believe we have a service that is helpful in improving market transparency and ease of use while at the same time not being intrusive,” he continued.

Adding that, “Our idea is also based on our own experience in the capital markets.  Brokers provide a very valuable service for price discovery and transaction assistance.  However, in busy times traders and underwriters do not have time for small talk.  They want to know the prices and market depth but they have no time for small talk with brokers.”

The new ILW pricing service is gaining traction in the market, with market participants pleased to see a new way of gaining a rapid view of realistic price marks for industry loss warranties (ILW’s).

Greg Hendrick, CEO at recently formed Vantage Group, told us that the service is, “A simple but clever improvement to the sharing of pricing in the ILW marketplace.”

Erik Manning, CEO at ILS manager Peak Capital, noted that, “We believe that ILW market pricing transparency will encourage a greater velocity and volume of trading across the market which will benefit all market participants.”

Nina Nikolova, Senior Underwriter Non-Life at insurance-linked securities (ILS) specialist Schroder Secquaero, also commented, “We see the ILW pricing service by Stonybrook as a great step forward towards transparency and efficiency in the highly dynamic ILW market. When market conditions change frequently, having the most current pricing helps to make more informed investment decisions which is the ultimate goal of every ILS fund.”

It’s clear market participants appreciate the innovative approach to provision of ILW pricing and we’d hope that this move by Stonybrook to deliver more transparency to the market, might stimulate similar moves at other trading desks.

Try out Stonybrook Capital’s ILW pricing service at any time, receiving a price sheet of fresh ILW pricing, simply by sending a blank email to [email protected].

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